New York City Council should pass the Small Business Jobs Survival Act

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Why is everyone so afraid of the Small Business Jobs Survival Act? A piece of legislation aimed at helping small businesses survive in a brutal New York real estate market has never come up for a vote, despite being around in some form since 1986.

This month, over the loud objections of the real estate industry’s powerful lobbying arm, the Real Estate Board of New York, the bill is likely to get a hearing – and possibly a vote.

The legislation would require landlords to tell commercial tenants 180 days before the end of a lease whether they intend to renew it or state a valid legal reason why they won’t, such as delayed rent payment without cause, use of commercial space that is different than what is spelled out in a lease, or engaging in illegal activity. Otherwise, the tenant can get a 10-year lease and can demand arbitration if they believe the rent increase is too much. The arbitrator would include average rents in the surrounding area, so landlords won’t get shortchanged – it’s just that there would be a way of stopping them from setting the rent above the market rate, leaving the space empty until a national chain comes along to fill it.

Since the repeal of commercial rent control in 1963, small business owners in New York City have effectively been on their own. When a lease expires, a landlord can hike a rent as much as desired. One year, you’re paying $5,000 a month. The next year, $25,000. The result has been vacancies on once-teeming stretches, such as Bleecker Street, and an explosion in chains elsewhere: national chains in New York City have increased their numbers for nine consecutive years, according to Center for an Urban Future. As of last year, New York City has been blessed with 612 Dunkin’ Donuts, 433 Subways and 260 Duane Reade/Walgreens.

To slow the decline of the locally owned small business, the bill would simply give small businesses some – but not all – of the rights tenants enjoy in rent-stabilized apartments.

Without those protections, running a small business is almost impossible in New York City’s unforgiving real estate market. In many neighborhoods, rents are simply too high or rising too fast. National chains offer landlords deep pockets and less risk that they will go out of business.

In fact, as documenters of this phenomenon, such as “Vanishing New York” author Jeremiah Moss, have noted, landlords will sometimes offer more favorable terms to a Starbucks or a Chase Bank over the local mom and pop, because large chains are less vulnerable to economic downturns.

Landlords, in many cases, would rather let a property sit vacant in the hopes that one day a major chain will swoop in. Columbia Law School professor Tim Wu coined the term “high-rent blight” to describe the large number of storefronts in parts of Manhattan, such as the West Village, that remain vacant because landlords don’t want to rent to any tenant that’s not a chain.

The fundamental character of New York is its small businesses. Working-class entrepreneurs, first-generation immigrants and hustling strivers could have an idea and try their luck in a city teeming with customers. National chains sometimes offer some advantages to consumers, such as longer hours or lower prices. But they are also dehumanizing, presenting cookie-cutter facades that look the same in Des Moines or Dallas as in New York City. With few exceptions, they aren’t good corporate citizens either: fast food franchises, for example, often have notoriously exploitative labor or environmental practices.

Were the Small Business Jobs Survival Act to pass in its current form – which isn’t guaranteed – it would be a boon for small business, but no panacea. Real estate interests, which donate generously to politicians in both parties, are hoping New York City Council members kill the legislation, as they have before.

If the bill became law, it would likely face a legal challenge. There is the question of whether New York City can establish dominion over commercial rent laws at all. The New York Bar Association has argued, along with the real estate industry, that it can’t, since any kind of regulation of rents is a state matter. The real estate lobby has also contended that these kinds of private property regulations would run afoul of the Fifth Amendment of the U.S. Constitution, which prohibits the government from taking private property without just compensation.

Of course, New York City had commercial rent control for 18 years and the city didn’t fall apart. In fact, it grew and thrived. A state law implemented commercial rent control in the city from 1945 through 1963, and its commercial districts were much healthier during those years than, for example, the 18 years that followed. The old commercial rent law was a wartime emergency measure, initially. It limited rent increases to 15 percent at first, with provisions for arbitration when the lease was renewed again. Higher courts upheld its legality.

Landlords didn’t like the law and, eventually, it was repealed in 1963. Back then, real estate was far cheaper and businesses and chains far less prevalent. Independent bookstores, barber shops, grocery stores and cafes could afford a storefront in most areas of the city. With the city’s economic challenges and loss of population in the late 1960’s and the ’70s, rents stayed low and the problem in most neighborhoods was empty storefronts due to a lack of demand, not landlords holding out for a CVS.

Today, the city faces a housing shortage like it did after World War II. The same skyrocketing prices, crying out for some form of control, define the commercial real estate market.

The City Council, and eventually the state Legislature, must restore some stability and predictability to commercial rents. This is the fight that can turn the tide against hyper-gentrification and the absolute colonization of chain stores in this city.

In addition to the Small Business Jobs Survival Act, the City Council must take up the cause of commercial rent control. The state, not the city, will most likely have to implement it, but the Democrat-dominated council could pass a resolution sending a signal to the state that this is what the city wants and needs.

If Democrats take control of the state Senate next year, the scales will be tilted toward small businesses and working-class tenants for the first time in many decades.

Politicians must understand their duty is to protect those who are struggling. New York is a deeply unequal place, but this is not a law of nature – there was a time when public higher education was virtually free, housing was affordable and landlords had to negotiate with commercial tenants in good faith. That time, with some effort, can return.

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As founder and research director of the Empire Center for Public Policy, E.J. McMahon is a go-to expert on budget plans and policy proposals. His organization promotes greater transparency, accountability and fiscal responsibility in state government, which often puts him at odds with lawmakers and the governor. McMahon previously worked as a journalist in Albany, as an Assembly Republican staffer and a budget adviser for almost 30 years, giving him great insight into the goings-on in the Capitol.